0 valutazioniIl 0% ha trovato utile questo documento (0 voti)

7 visualizzazioni14 paginekeu

Nov 06, 2015

© © All Rights Reserved

DOCX, PDF, TXT o leggi online da Scribd

keu

© All Rights Reserved

0 valutazioniIl 0% ha trovato utile questo documento (0 voti)

7 visualizzazioni14 paginekeu

© All Rights Reserved

Sei sulla pagina 1di 14

Paylamak Gzeldir :)

Journal of Finance and Investment Analysis, Vol. 2, No.4, 2013

DETERMINING IMPACTS ON NON-PERFORMING LOAN RATIO IN TURKEY

Metin Vatansever1 and Ali Hepen2

Abstract

one of the most important components of a nations capital. Similarly, the

loan portfolio represents an important component of a banks total assets.

These assets generate huge interest income which is a critical measure of

the banks financial performance and stability. Therefore, the nonperforming loan ratio is a critical tool to measure a banks performance.

There is recently a growing recognition between macroeconomic

indicators, bank-level factors and the non-performing loans (NPLs) ratio.

The purpose of this study is to investigate whether there is a significant

relationship between macroeconomic indicators, bank-level factors and

non-performing loan ratio in Turkey. In this study linear regression models

and cointegration analysis are utilized to determine the significant

relations between the periods from January 2007 to March 2013. Our

empirical results show that debt ratio, loan to asset ratio, real sector

confidence index, consumer price index, EURO/ Turkish lira rate, USD/

Turkish lira rate, money supply change, interest rate, Turkeys GDP growth,

the Euro Zones GDP growth and volatility of the Standard & Poors 500

stock market index does not have significant effect to explain NPL ratio on

multivariate perspective. On the other hand, industrial production index,

Istanbul Stock Exchange 100 Index, inefficiency ratio of all banks

negatively affect NPL ratio; unemployment rate, return on equity and

capital adequacy ratio positively affect NPL ratio.

JEL classification numbers: C53, E00, E27, E29

Bank specific indicators, Cointegration

1 Introduction

There is a growing recognition that the quantity or percentage of nonperforming loans (NPLs) is related to bank failures and the financial status

of a country. Especially after current global financial crisis, which started in

US and spread to whole world especially Europe, the issue of nonperforming loans (NPLs) has gained increasing attentions because of the

rapid increased default of sub-prime mortgage loans.

Moreover, there are some evidences that financial and banking crisis in

East Asia and Sub Saharan African countries were preceded by increasing

non-performing loans. From the point of this view, the non-performing loan

ratio is therefore a critical measure to evaluate a banks performance, the

economic activity, and the national financial stability and soundness. In

the literature macroeconomic indicators and bank specific factors may

cause increase in NPLs.

From this point and the necessity, the aim of this study is to determine the

long term effects of macroeconomic and bank specific factors on nonperforming loan ratio in Turkey. In particular, we run linear regression

models and cointegration analysis to find a significant and long term

relations between NPL ratio and several specific factors by using time

series dataset covering the monthly period between January 2007 and

March 2013.

The structure of the rest of this research is organized as follows. The next

section provides a literature review that attempts to delineate the

determinants of loan portfolio quality and NPL ratio. Section three

provides overview the data set and theoretical framework adopted in this

paper and section four gives the empirical results. Finally, section five

offers concluding comments.

2 Literature Review

This section reviews the previous empirical studies on determining factors

of the NPLs. Many studies investigate the factors that induce NPLs by

examining potential links between bank-specific variables and

macroeconomic factors.

[1] study finding a regression equation to explain the trends of NPL ratio in

Hang Kong by using nominal interest rates, the CPI, property prices, equity

prices, number of bankruptcies, the unemployment rate, and real GDP as

explanatory variables They find that the NPL ratio rises with increasing

nominal interest rates and an increasing number of bankruptcies, but

decreases with higher CPI inflation, economic growth, and property price

inflation. Additionally, [2] shows that Czech NPL of the corporate sector

rate can be positively affected by increasing real effective exchange rate,

the loan to GDP ratio, unemployment and interest-rate increases.

Beside on classic linear regression model, [3] and [4] use VAR

methodology to investigate which factors is most effect on NPLs. [5]

indicates yields can be used to make accurate predictions of the future

effects of the business cycle on asset quality. [6] show the impact of GDP

growth and the business cycle on credit risk and also on the quality of

bank loans.

On the other hand, [7] and [8] study panel date set to understand of NPLs

behaviors on their own researches. They use both macroeconomic and

bank-specific factors. According to their studies, the quality of loans can

be explained mainly by macroeconomic variables.

3 Data and the Theoretical Framework

3.1 Overview of Data

There is a growing literature which suggests that NPL ratio maybe be

explained by both macroeconomic and bank specific factors. In this study,

we take into consideration, 6 bank specific factors, 10 macroeconomic

factors and 2 global factors. Table 1, table 2 and table 3 gives those

variables.

Table 1: Bank Specific Factors

Bank Level Factors

INEF

Dept

ROE

Definitions

LOAS

CAR

Macroeconomic Factors

Definitions

RSCI

CPI

EUR

USD

IPI

ISE

M3Y

UR

Unemployment Rate

IR

Interest Rate

GNP

Global Factors

Definitions

EGNP

VIX

Index

loans term (NPLs) can be different. In Turkey, loan performing loans are

defined as a loan that has been unpaid for ninety days or more. As a

target variable, we use the non-performing aggregate loan ratio

calculated by dividing non-performing loans by total aggregate (including

consumer, housing, auto, credit cards and the other loans) and nonperforming loans. The target and the other factors time period cover the

monthly period January 2007 March 2013, a total of 75 observations and

are collected from the official web site of [9] and [10].

Table 4: Summary Statistics of the NPL Ratio

Series:

NPL

Sample

2007:01 2013:03

Observations:

75

Mean

0.034576

Median

0.033225

Maximum

0.050747

Minimum

0.025157

Std. Dev.

0.007677

Skewness

0.693126

Kurtosis

2.279410

Jarque-Bera

7.627949

Probability

0.022060

that the average ratio, minimum and maximum value is roughly 3.46%,

2.25% and 5.07% respectively, during the period of January 2007 to March

2013. Figure 1 indicates how the NPL ratio is distributed across the time

period.

Figure 1: Total NPL Ratio in Turkey, January 2007-March 2013

As seen from the figure 1, there is one significant jump in the NPL ratio in

Turkey, which occurs in the starting period of the Global Financial Crisis

that originated in the USA with the 2007 collapse of the sub-primes

mortgage market. It shows how the global crises effects NPL ratio in

Turkish credit market. However, NPL ratio goes down slightly after the

global crises. The economy quickly recovered and continued to grow over

the next following months, which is reflected in the improvement of the

NPL ratio.

3.2 Theoretical Framework

3.2.1 Cointegration Analysis

The concept of cointegration and the implications of cointegrating

relationships are very relevant in the real estate market. Real estate

economic and investment theory often suggests that two or more

variables would be expected to hold some long-run relationship with one

another. Therefore, cointegration analysis is a crucial tool for the existence

of such a long-run relationship [11]. There are a number of methods for

testing cointegration in the literature. This article considers two most

Augmented Engle-Granger (AEG) test and Cointegrating Regression

Durbin Watson (CRDW) test [12].

3.2.2 Engle-Granger (EG) or Augmented Engle-Granger (AEG) Test

Regression of a nonstationary time series on other nonstationary time

series may produce a spurious regression. To avoid the spurious

regression problem that may arise from regressing a nonstationary time

series on one or more nonstationary time series, we have to transform

nonstationary time series to make them stationary. If we subject our time

series data individually to unit root analysis and find that they are all I(1);

i.e., they contain a unit root; there is a possibility that our regression can

still be meaningful (i.e., not spurious) provided that the variables are

cointegrated. In order to find out whether they are cointegrated or not, we

simply carry out our original regression and subject our error term to unit

root analysis. If it is stationary; i.e., I(0), it means that our variables are

cointegrated and have a long-term, relationship between them. In short,

provided that the residuals from our regression are I(0) or stationary, the

conventional regression methodology is applicable to data involving

nonstationary time series [13].

3.2.3 Cointegrating Regression Durbin Watson (CRDW) Test

An alternative and quicker method of testing for cointegration is the

CRDW test, whose critical values were first provided by [14]. In CRDW, the

Durbin Watson statistics d obtained from cointegrating regression is

used[1]. But the null hypothesis is d=0 that rather than the standard d=2.

The 1% critical value to test the hypothesis that the true d=0 is 0.511.

Thus, if the computed d value is smaller than 0.511, we reject the null

hypothesis of cointegration at the 1% level. Otherwise, we fail to reject

the null, meaning that the variables in the model are cointegrated and

there is a long-term relationship between the variables [15].

4 Empirical Results

4.1 Development of the Model

The aim of this study is to investigate whether there are significant longterm effects (which is divided into three parts such as country, global and

bank specific factors) on non-performing aggregate loan ratio in Turkish

banking systems. To find the effects between them, NPL ratio is regressed

on those bank specific, macroeconomic and global indicators.

(1)

where NPLs are non-performing aggregate loan ratio; is the error term

and the subscript t represent time. is intercept term; and finally are the

estimators of confidence index-real sector, consumer price index, Euro/

Turkish Lira rate, USD/ Turkish Lira rate, industrial production index,

Istanbul Stock Exchange 100 Index, money supply %, unemployment rate,

gross national product growth, the euro zones GDP growth, volatility of

the Standard & Poors 500 Stock Market Index (VIX), return on equity,

loan-to-assets ratio, inefficiency, debt and capital adequacy ratio

respectively.

By using Eviews 4.1 statistical package, we run regression analysis on

equation 1. According to the estimated ordinary least square results, pvalues of are respectively all within acceptable range and they are

significance at 5% significance level. On the other hand, the rest of

variables are not significance at 5% significance level. So we ignore those

insignificance variables in those modes. By ignoring them, we obtain the

following estimated ordinary least square results for equation 1.

(2)

At equation 2, P-values of are respectively all within acceptable range and

they are significance at 5% significance level. Finally, p value of the Fstatistics is zero for all the three models. Additionally, we have estimated

more models in order to determine the right specification, by choosing

from the different models estimated R-Squared, Adjusted R-Squared, the

Akaike, Schwarzs Bayesian information criteria. After experimenting with

various functional forms, from R-Squared, Adjusted R-Squared, the Akaike

and Schwarz criteria point of view, the proper model to best adjust the

data below is specified and estimated.

(3)

where is the first lag of error term, and t is a trend that increases by one

for each observation.

By using Eviews 4.1 statistical package, we obtain the following estimated

ordinary least square results for the above equation:

(4)

This last model is obviously the best one. p-values of , , , , , , , , and are

all within acceptable range and they are significance at 5% significance

level. As for goodness-of measures and values are about 0.97 and

0.96 respectively, which indicate the regression fits quite well. Finally, pvalues of the F-statistics are zero. The Akaike, Schwarzs Bayesian

information criteria are -0.901 and -0.597 respectively which are minimum

values in experimenting with various functional forms. It obviously shows

that the first, second and fourth lag of error term have significant and

important effect on our model.

There is, however, a possibility that the ordinary least square results may

be misleading due to inappropriate standard errors because of the

presence of heteroskedasticity. In order to test whether error terms are

heteroskedastic or not the heteroskedasticity test (with cross term) is

carried out [16]. The probability value of 0.209 in this test show that error

term is jointly insignificant even at 5% significance level, meaning that

they are no heterosketastic in our models.

We need also to test for serial correlation. Breusch Godfrey Serial

Correlation LM test is applied for the three different models. The

(effectively) zero probability values in this test strongly indicate the

presence of serial correlation in the residuals. In the presence of serial

correlation, the ordinary least square estimators are still unbiased as well

as consistent and asymptotically normally distributed, but they are no

longer efficient, meaning that standard errors are estimated in the wrong

way and, therefore, usual confidence intervals and hypotheses tests are

unreliable. Moreover, usually, the finding of autocorrelation is also an

indication that the model is misspecified. [17] proposed a general

covariance estimator. The covariance estimator is used to try overcome

standard errors for autocorrelation in the error terms in the model. In

order to correct the standard errors for autocorrelation, the model is reestimated by ordinary least square with Newey-West2 procedure and then

all indicators become significant at 5% significance level. Based on these

results, the model is correct specified.

4.2 Cointegration Analysis

As indicated before, since it is critical to find out whether the results

obtained from our model are meaningful (i.e., not spurious) or not, let we

apply formal unit root tests in each series to test the reliability of our

estimates.

4.2.1 Unit Root Tests

The established standard procedure for cointegration analysis is to start

with unit root tests on the time series data being analyzed. The

Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) unit root test are

used to test for the presence of unit roots and establish the order of

integration of the variables in the model.

Table 5: Summary of ADF and PP Tests for Unit Roots in the Variables

Variable

ADF Test

Probability

PP Test

Probability

Results

NPL

-0.535

0.481

-0.638

0.437

IPI

1.068

0.924

0.741

0.872

ISE

1.075

0.925

1.091

0.927

UR

-0.195

0.612

-0.474

0.507

ROE

-1.570

0.109

-1.659

0.092

INEF

-0.963

0.297

-0.906

0.321

CAR

-1.279

0.184

-1.330

0.169

Table 5 shows the results of the ADF and PP unit root tests3. The null

hypothesis of the test is that there is a unit root against the alternative

one that there is no unit root in the variables.

The ADF and PP statistics for NPL, IPI, ISE, UR, ROE, INEF and CAR are all

insignificant at 5% level of significance, which leads to non-rejection of the

null hypothesis that there is a unit root problem in the variables.

According to ADF and PP test, it is obvious that the variables are nonstationary.

As mentioned previously, differencing has the effect of making the

variable stationary. Table 6 summarizes the results of unit root tests for

first difference variables.

Table 6: Summary of ADF and PP Tests for Unit Roots in the Variables (In

1st Difference)

Variable

ADF Test

Probability

PP Test

Probability

Results

NPL

-2.176

0.029

-4.047

0.000

IPI

-2.232

0.026

-15.303

0.000

ISE

-3.480

0.000

-7.439

0.000

UR

-.5.825

0.000

-3.178

0.002

ROE

-5.742

0.000

-9.484

0.000

INEF

-4.610

0.000

-4.610

0.000

CAR

-6.157

0.000

-6.185

0.000

The ADF and PP test statistics for the first difference variables are all

significant at 5% level of significance, which leads to rejection of the null

hypothesis that there is a unit root problem in the variables. Based on ADF

and PP test, it is apparent that the first difference variables are stationary,

which implies that the variables are integrated of order one, I(1).

4.2.2 The Augmented Engle-Granger (AEG) Test

The residuals from the estimation of equation 3 used to test for the

existence of cointegrating relationship between the NPLs ratio and several

macroeconomic and bank specific factors. The null hypothesis is that the

residuals have a unit root problem against the alternative that the

variables cointegrate. The AEG test is presented in the below table (Table

7).

Table 7: Summary of ADF and PP test output for 3 equation

ADF Test

Probability

PP Test

Probability

Results

-2.770

0.006

-8.138

0.000

The probability values in those tests indicate that residuals are significant

at 5% significance level, meaning that that the null hypothesis is rejected.

To reject the null hypothesis implies that the residuals have not a unit root

problem, i.e., they are stationary. It can therefore be concluded that,

based on the AEG method, the variables are cointegrated.

4.2.3 Cointegrating Regression DurbinWatson Test

Since cointegration is very crucial to the reliability of estimated

parameters, a second test, namely CRDW test, was carried out to make

sure that the variables in this study are definitely cointegrated. The

DurbinWatson statistic for the regression represented by equation (3) is

1.61, which is above the 1% critical value of 0.511. Therefore, we fail to

reject the null hypothesis of cointegration at the 1% level.

To sum up, our conclusion is based on both the AEG and CRDW tests

giving the variables that NPL, IPI, ISE, UR, ROE, INEF and CAR are

cointegrated. Depending on these results, we may infer that the

appropriate model for NPL is the one represented in equation (3) and

determines that our estimations are reliable, i.e., not spurious.

Equation 4 reflects that unemployment rate, return on equity, inefficiency,

capital adequacy rate have positive long-term effect on NPL ratio. In

figures, when unemployment rate (UR), return on equity (ROE), capital

adequacy (CAR) increased by 1 point then NPL rate increased 0.15, 0.011

and 0.146 by point respectively and when industrial production index (IPI),

Istanbul Stock Exchange100 Index (ISE), Inefficiency ratio of all banks

(INEF) increased by 1 point then NPL ratio decreased by 0.004, 0.109 and

0.063 point, respectively

In addition, equation 4 reveals that there is a significant positive relation

between NPL rate and the first, second and also fourth lag of error term. In

figures, when , and increased by 1 point, the DRPPI increased by 1.118,

0.522 and 0.272 point respectively.

5 Conclusion

This study analyzes the relationship between the NPLs ratio and several

macroeconomic and bank specific factors in Turkey by using ordinary least

square estimation approach with integration analysis and the time series

from January 2007 to April 2013.

Empirical results show that that debt ratio, loan to asset ratio, confidence

index-real sector, consumer price index, EURO/ Turkish lira rate, USD/

Turkish lira rate, money supply change, interest rate, GDP growth, the

Euro Zones GDP growth and volatility of the Standard & Poors 500 stock

market index does not have significant effect to explain NPL ratio on

multivariate perspective.

On the other hand, industrial production index (IPI), Istanbul Stock

Exchange 100 Index (ISE), Inefficiency ratio of all banks (INEF) negatively,

Unemployment rate (UR), return on equity (ROE), capital adequacy ratio

(CAR) positively affect NPL ratio.

Additionally the positive and negative effects are such a long-term, not

spurious. Our findings have several implications in terms of policy and

regulation. It can help identify the causes of NPL ratio and thus lead

understanding of banking and credit market conditions as well as their

impact on economic activity, and the national financial stability and

soundness.

References

[1] S. Gerlach, W. Peng and C. Shu, Macroeconomic conditions and

banking performance in Hong Kong SAR: A panel data study,

BIS Papers, 22, Bank for International Settlements, Basel, (2005).

[2] P. Jakubik, Macroeconomic environment and credit risk, Czech Journal

of Economics and Finance,10(1), (2007), 133166.

[3] M. Gambera, Simple forecasts of bank loan quality in the business

cycle, Emerging Issue Series, 3, Federal Reserve Bank of Chicago,

Chicago, (2000).

[4] W. Blaschke and M. Jones, Stress testing of financial systems: An

overview of issues, methodologies and FSAP experiences, IMF Working

Paper, 01/88, Washington, (2001).

[5] M. Gambera, Simple forecasts of bank loan quality in the business

cycle, Emerging Issue Series, 3, Federal Reserve Bank of Chicago,

Chicago, (2000).

[6] W. Blaschke and M. Jones, Stress testing of financial systems: An

overview of issues, methodologies and FSAP experiences, IMF Working

Paper, 01/88, Washington, (2001).

[7] D.P. Louzis, A.T. Vouldis and V.L. Metaxas, Macroeconomic and bankspecific determinants of non-performing loans in Greece: A comparative

study of mortgage, business and consumer loan portfolios, Journal of

Banking & Finance, 36(4), (2011), 1012-1027.

http://dx.doi.org/10.1016/j.jbankfin.2011.10.012

[8] N. Klein, Non-performing loans in CESEE: Determinants and impact on

macroeconomic performance, IMF Working Paper, 13/72, Washington,

2013.

[9] Banking Regulation and Supervision Agency (BRSA), [Online]

Available from: http://www.bddk.org.tr/WebSitesi/English.aspx (October

21, 2013).

from: http://www.tcmb.gov.tr/yeni/eng/ (October 25, 2013).

[11] C. Brooks and S. Tsolacos, Real estate modeling and forecasting, First

edition, Cambridge University Press, New York, 2010.

[12] D.N. Gujurati, Basic econometrics, Fourth edition, The McGrawHill,

New York, 2004.

[13] D.N. Gujurati, Basic econometrics, Fourth edition, The McGrawHill,

New York, 2004.

[14] J.D. Sargan and A. Bhargava, Testing residuals from least squares

regression for being generated by the gausian random

walk, Econometrica, 51(1), (1983), 153-174.

http://dx.doi.org/10.2307/1912252

[15] D.N. Gujurati, Basic econometrics, Fourth edition, The McGrawHill,

New York, 2004.

[16] H. White, A heteroscedasticity-consistent covairance matrix estimator

and a direct test for heteroscedasticity, Econometrica, 48(4), (1980), 817838. http://dx.doi.org/10.2307/1912934

[17] W.K. Newey and D.K. West, A simple, positive semi-definite,

heteroskedasticity and autocorrelation consistent covariance

matrix, Econometrica, 55(3), (1987), 703708.

http://dx.doi.org/10.2307/1913610

Math and Stats. Istanbul. e-mail: vatansevermetin@gmail.com

2 Assoc.Prof.Dr., Istanbul University, School of Business, Department of

Finance. Istanbul. e-mail: alihepsen@yahoo.com

[1] We know that , so if there is to be a unit root, the estimated is about

1, which implies that d is about zero.

1

2 Newey and West procedure may not appropriate in small samples. Since

we have 75 observations, our samples may be regarded as reasonable

large.

3 Two lags have been used in ADF unit root tests.

## Molto più che documenti.

Scopri tutto ciò che Scribd ha da offrire, inclusi libri e audiolibri dei maggiori editori.

Annulla in qualsiasi momento.